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Oligopoly

Oligopoly, in most cases, takes place to the detriment of the consumers. Oligopoly is evident in the oil and automotive market where only a few companies control the markets. The following write up is a discussion of oligopoly and its effect on consumers.

By “Seldom do businessmen of the same trade get together but that it results in some detriment to the general public,” Adam Smith meant that the coming together of business people would result to price fixing, which is bad for the consumers due to price fixing. Price fixing occurs when business competitors conspire to set the prices of goods or services at a certain level. This is a form of collusion that violates both federal and state law. Price fixing violates the competition law and causes a surge in prices and a fall in supply in most cases. It is evident when there is a shortage of a commodity such as oil, leading to the sellers holding up their stock in their stores waiting for prices to go up. This is usually harmful to the consumers.

Oligopoly is a market situation where only a small number of sellers are dominant in the market. Oligopoly gives the sellers involved, a chance to set prices and determine when to release goods in the market. The decision by one seller gets influenced by the other seller decision since each oligopolist is aware of the other oligopolist’s decisions. This makes them the highest collusion risks. Firms in an oligopoly operate under imperfect competition and a demand curve which is kinked reflecting inelasticity below market price and elasticity above market price. Barriers to entry into an oligopoly market are strong. Firms accrue greater market share and revenue. Since its creation, OPEC has been outstanding as one of the most effective oligopoly. OPEC is an inter-governmental organization that has control of the main oil producing states. The non-OPEC countries are present though they don’t work under the same umbrella, causing competition among one another, hence eliminating scope for the other countries to enter the market due to the limited nature of oil resources. Non-OPEC countries affect the oil prices causing competition, which in turn affect fixing of crude oil prices, making OPEC the best example of an oligopolist.

Oligopoly is harmful to the consumer. It is usually caused by limited nature of the resources in question, e.g. oil, and stringent rules that have been set by the few market players for entry into such a market.

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